THE Czech Republic, Germany, Colorado and Puerto Rico. It sounds like an exotic backpacker itinerary.

Years ago, these destinations would have been far removed from the minds of Australian property players. But the industry has been breaking out the atlas in recent years, as acquisitions go further and further afield.

Earlier this month Babcock & Brown funnelled $178 million into commercial property in Prague and forked out $657 million for a portfolio of residential apartments across western Germany.

Macquarie DDR Trust is considering buying up in Puerto Rico.

Westfield, Multiplex and Lend Lease have already done a swag of deals in Britain.

And Westfield was linked last year with Dutch-listed property landlord Corio, which owns shopping centres and office towers in The Netherlands, France, Italy and Spain.

APN Funds Management predicts offshore assets will make up 40 per cent of the listed property trust sector by the end of this year.

International property holdings will most likely grow from $27 billion to $40 billion over that time.

And by next year, according to APN's property securities manager Michael Doble, offshore assets will tip the 50 per cent mark.

It's inevitable. Australia's property market accounts for a fraction of the global total. Institutions own most of this country's investment-grade assets, with the retail sector particularly locked up.

So proponents of the international shift argue that investors who shun offshore deals are cutting themselves out of a world of opportunity.

But just where should Australian property investors plant their funds? That's a trickier question and one that largely has to be answered on a deal-by-deal basis.

David Dix runs the $939 million Macquarie DDR Trust, which listed in November 2003 and now owns 27 shopping centres in the US.

It is one of a new breed of Macquarie Bank's listed property trusts, hitching its wagon to the US-based giant Developers Diversified Realty, which is capitalised at $US4.1 billion.

Macquarie DDR has first right of refusal on DDR's deals, and is now crunching the numbers on up to $US200 million worth of offshore property.

Some of those deals may take the locally-listed trust to Puerto Rico.

Mr Dix said there was still "ample opportunity" to do deals in the US.

"Clearly there's been compression of yields and assets are more expensive than they were 12 months ago, that's not news to anybody." He admitted that when DDR first flagged its $US1.15 billion Puerto Rican acquisition, he wasn't entirely sure where it was on a map.

Having since visited there to check out the portfolio, he said he understood the rationale for the deal: Americans think of Puerto Rico as their 51st state, and DDR's decision to buy there was largely driven by its tenants.

"The feedback from the retailers was, `Get down there, we want you down there'," he said.

But Mr Dix said the latest tranche of properties under investigation from DDR involved many geographical locations. And Puerto Rico was "nowhere near the majority".

Whether or not the trust decides to pack its bags for Puerto Rico will become clear later this year.

But that trust, like all its internationally minded peers, will have to do its homework.

The shift offshore has been criticised by several industry observers, one of whom last year suggested listed trusts were at risk of creating a market akin to junk bonds as they rushed headlong into the US.

Melbourne-based APN Funds Management has made no bones about its concerns, which largely centre on risk.

APN's Mr Doble said managing risk was "a real key" to the success, or otherwise, of international property plays.

"There's a place for direct exposure, but it's all about appropriate risk measures, local knowledge and expertise," he said.

"Investing in any market depends on an acceptable and secure regulatory environment, an acceptable local economy and -- at the property level -- how that economy relates to the asset you are looking to buy." On those criteria, he suggested office markets in Germany would not be a compelling buy at the moment because of the weak local economy.

Similarly, retail property in the UK "appears challenging due to the tightness of yields".

But the crucial argument was no longer whether investors should go offshore at all, but whether to opt for direct exposure or buy into already-established real estate investment trusts.

Mr Doble said there was a place for both options in most investor's portfolios, but they should be aware of the different risks and rewards.

Last July APN launched its fund-of-funds, to invest in REITs across the world. New York-based Fiduciary Trust Company International has the mandate to manage that fund as well as its own international clients.

Jack Foster, senior vice president of Fiduciary's real estate group, trawls the world looking for promising REIT markets, and expects 2005 will be a good year.

"Given the global economic recovery, low levels of construction and a relatively benign interest rate and inflation outlook, we believe real estate should continue to perform well," he said.

His firm saw good buying this year in the Netherlands, as well as Britain, which is likely to introduce its long-awaited REIT market in 2006.

Germany was also working to establish a REIT market and was likely to take the first steps next year.

"We are also interested in Japan, an expensive market, but one in which we believe the opportunity for rental rate growth has continued to look strong," Mr Foster said.

He said governments worldwide were supporting the establishment of REIT markets, as it gave them an effective and efficient way of taxing property.

John Gall, Franklin Templeton's local managing director said: "Five years ago, only about five countries supported the REIT structure, but today there are more than 12.

"Real estate is the largest asset class around the globe but only a very small portion has been securitised to date, so there is a huge opportunity to take privately held real estate and structure it as public companies." Many Australian-based trust managers were at the forefront of this trend. Macquarie Bank alone has inked joint ventures with four international partners.

Deutsche Bank and ING have similar offshore arrangements, as do Centro Properties and Galileo Shopping America Trust.

But competition is intensifying from other, newer players and deals are getting harder to find.

On that subject, the last word goes to Macquarie DDR's Mr Dix.

"Are there as many opportunities around as when we first listed? Probably not.

"Does that mean we're short of opportunities? Not at all." Information risk the key for trusts